Innovation intersects with sustainability as resale and blockchain adoption rise across luxury

This Vogue Business Index article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership here. This is one of the five chapters comprising the Vogue Business Index: Winter 2022/23 edition and should be read in conjunction with the others. Please use the table of contents below to navigate between the chapters of the Vogue Business Index: Winter 2022/23 edition. Key takeaways: Investment remains key: Brands hit hard by the economic downturn, inflation and the supply chain crisis should continue to invest in innovation. Challenges that require major technological improvements or operational changes — such as category expansion, rental and resale — are key to connecting with new consumers and expanding revenue. Virtual worlds still attract consumers: The cryptocurrency downturn has had some impact on how the industry views NFTs. However, a significant share of consumers, particularly younger generations, remain enthusiastic about the potential for luxury in virtual worlds. Brands should lean into their cultural and social value when thinking about metaverse marketing as the world of crypto stabilises and the financial returns of NFTs are less immediate. Look to omnichannel innovation: Some leading brands are looking at integrating virtual clothing try-on into their online sales experience. With technology providers such as Snap Inc. enthusiastic to share tech innovations, brands would be well-advised to consider the potential of these features and other original projects in virtual and augmented reality. Innovation during a recession Fashion brands are gearing up for an economic slowdown in 2023. The UN’s International Monetary Fund (IMF) has warned that the world’s largest luxury markets — China, the US and Euro area — will see continued stagnation in the year ahead. While high-end luxury generally has a strong buffer against these prevailing economic conditions, the prospects for brands with a more diverse set of price points are less clear, especially with the ongoing supply chain crisis and the impact of inflation. Giving into the temptation to cut investment in innovation at this stage would be a risky strategy. The most innovative brands in the Index are demonstrating their willingness to take on some of the industry’s big challenges. One of these is resale, which 46 per cent of luxury shoppers worldwide say they are excited about brands offering. More than a quarter (28 per cent) of Index brands now have some resale option, either with a partner or via a platform they run directly. This includes both Gucci and Burberry, which once again are ranked as the first and second most innovative brands in the luxury sector. Michael Kors has, meanwhile, made itself into a resale pioneer of sorts after launching a monobrand marketplace in August, where consumers can both purchase and list pre-owned items for sale. Other direct resale services offered by brands typically give a fixed amount of credit to consumers for submitting pre-owned items instead of allowing them to set their own price. One of the benefits of resale, particularly with clothing, is that it allows brands to market products at a wider price point without necessarily diminishing the value of their new inventory. Younger luxury fans with less wealth, who are more exposed to the declining economic conditions, may still be able to afford to buy pre-owned products even if they can no longer justify buying new, with 24 per cent of 18 to 24-year-olds expecting to make a switch to resale purchases if the prices of designer goods rise in the next year. Another way that brands are opening up their products to consumers with a constrained cashflow is buy-now, pay-later (BNPL). The majority (53 per cent) of brands now have BNPL as a checkout option, significantly up from 37 per cent since winter 2021. Nearly a fifth of luxury consumers aged between 18 and 24 expect to use credit or BNPL to fund purchases over the next 12 months if luxury prices rise. That figure increases to 38 per cent in Spain and 29 per cent in the US. Crypto focus shifts as market stutters Another payment innovation now being tracked by the Vogue Business Index is the ability to checkout using cryptocurrency. So far, three brands (or 5 per cent of the cohort) have begun offering this service, led by Gucci in May 2022. The price of Bitcoin dropped below £14,000 in late November, down from a high of £48,000 in the same month of 2021. After the collapse of major cryptocurrency exchange FTX in autumn 2022, the market for crypto assets has become increasingly volatile. This turmoil does not necessarily mean much for the brands allowing payment in cryptocurrency. Much like buy-now, pay-later, the risk can be passed on to the payment service provider rather than be taken on by the actual retailer. Only two Index brands have become newly involved in the NFT market in the six months to November 2022. Moncler announced its first release in October, and Salvatore Ferragamo gave away free NFTs as part of a store launch in New York. The pace of new launches slowing could be connected to current consumer interest: just a fifth (21 per cent) of consumers say they are enthusiastic about NFTs, a figure that has remained stable since the Spring 2022 edition of the Index. This indicates that luxury shoppers are less excited about NFTs than they are about other innovations covered in this chapter. In all, 28 per cent of Index brands have so far gotten involved with the NFT market. Many of the NFT launches so far have had social and community value in addition to financial benefits, therefore, brands may do well to focus on these other measures of value as the market situation settles. Several designers worked with Afterpay at New York fashion week to link the sale of NFTs to exclusive products, access to events and meet-and-greets with designers. This blend of physical and digital experiences is one obvious way of maintaining value. Alternatively, there are also potential opportunities in specific geographies — the MENA region, for instance, is now viewed as the fastest-expanding crypto market in the world. Enthusiasm for NFTs by luxury brands was expressed by 25 per cent of consumers in this region, up from 22 per cent in spring. Gaming and luxury: What’s next? Roblox has become the virtual world of choice for many luxury brands. Miley Cyrus became Gucci’s first-ever avatar guest when she entered Gucci Town on the platform as part of a campaign in August. A digital Carolina Herrera gown recently sold on the platform for $5,000, while Tommy Hilfiger opened its Roblox Tommy Play store this summer. On-brand gamification and virtual worlds are therefore helping to drive awareness, engagement, and desirability whilst also building community across new audiences. Collaborations with game developers are no longer a novelty for luxury brands. Projects such as Burberry’s recent partnership with Minecraft are a clear play for younger consumers. Over a quarter (28 per cent) of consumers aged under 34 are excited by the presence of brands in virtual worlds, versus 19 per cent of those aged over 45. Ensuring brand exposure to younger generations, and meeting them where they are, is a clever play when analysts are reporting a cohort of teenage consumers that are buying luxury younger than ever. The number of collaborations between gaming and fashion has remained relatively stable over the past few editions of the Index, with around a quarter of brands having an active collaboration at any one time. Brands are clearly wary of diluting the impact, but nostalgia has been a big feature of recent linkups as brands have targeted heritage gaming franchises that are nearly two decades old. Standouts include Pokémon with Balmain and Comme Des Garçons, Need for Speed with Versace and Gran Turismo with Dior — games that many in their late 30s or older may have played or even still be playing today. As brands become more comfortable with gaming collabs, the marketing opportunities will expand even further. In the UK, gaming remained the largest home entertainment sector in 2022, ahead of music and video, according to the Digital Entertainment and Retail Association's annual report, with the industry currently worth £4.66 billion. The race for virtual try-on Mixed-media shopping is here to stay. There has been a spike in video shopping, which nearly half (47 per cent) of brands now publicly advertise. Additionally, 43 per cent of Index brands have now been involved with an augmented or virtual reality project, versus 33 per cent in the Spring 2022 edition. Consumers are most excited about digital fashion (such as virtual fashion shows and AR try-on), with 34 per cent expressing enthusiasm, more than any other metaverse-related innovation category. In the past, try-on has been limited to accessories such as sunglasses and sneakers, but clothing is the real test of the technology. The fast rise of digital clienteling, now offered by brands including Dolce & Gabbana and Versace, is likely to be a lasting legacy of the Covid-19 pandemic, which would benefit from this enhanced feature. Snap Inc., the parent company of Snapchat, brought this idea to life with an immersive virtual try-on activation as part of the Vogue x Snapchat: Redefining the Body exhibition during Cannes Lions last summer. Scanning a QR code allowed visitors to try digital renditions of garments designed by Versace, Stella McCartney and other brands in virtual worlds inspired by the aesthetics of those brands. Ralph Lauren and Puma are among the early testers of Snap’s AR technology, which brands will be able to integrate into their own apps. Brands might want to collaborate further with the gaming industry and combine expertise in order to ensure new technologies meet the needs of the fashion world, as well as gaming audiences — for example, by improving digital apparel rendering. Independent designer Joshua Kane has been developing a game alongside an Atlanta-based digital studio for several years now, working together on challenges such as virtual fabric movement. More projects like this would be a way for the fashion world to cement itself in such a widely adopted art form while finding solutions and new techniques to render apparel more accurately in virtual formats — a challenge the industry continues to face. Case study: Hugo Boss doubles down on innovation In a similar vein, Hugo Boss has thrown its weight behind virtual clothing try-on, recently announcing a partnership with Austrian tech firm Reactive Reality to integrate virtual try-on into its e-commerce portal to dress virtual avatars in layered outfit combinations. The brand has made a number of targeted investments in fashion tech. RFID technology is also being rolled out in bricks-and-mortar stores, opening up the possibility of added supply-chain traceability. Forty-eight per cent of luxury consumers worldwide rate innovations in traceability as an exciting prospect. RFID technology also brings benefits to omnichannel functionality, allowing the brand greater visibility over inventory at any given time. These moves are helping carry forward the momentum of Hugo Boss’s recent rebrand, splitting into two separate brands: the Gen Z-focused Hugo and the millennial-targeted Boss, with a star-studded reset, recruiting celebrities Kendall Jenner, Hailey Bieber and Maddie Ziegler, among others. Since the summer, the brand has jumped 17 places in the Innovation rankings and now sits just behind luxury fashion’s 21st-century tech powerhouses Gucci, Burberry and Tommy Hilfiger. It may still take time for Hugo Boss’s new digital forays to be recognised by luxury consumers, who currently rate their digital experience of the brand as below average. Experiments, including virtual try-on, are a gamble, but it will need to take risks in order to burnish its technology credentials and stand out from its peers. To receive the Vogue Business newsletter, sign up here. 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